1/2006. Munich Re Group Quarterly Report

Transcription

1 1/2006 Munich Re Group Quarterly Report

2 Supervisory Board / Board of Management / Key figures Supervisory Board Dr. Hans-Jürgen Schinzler (Chairman) Board of Management Dr. Nikolaus von Bomhard (Chairman) Dr. Thomas Blunck Georg Daschner Dr. Heiner Hasford Dr. Torsten Jeworrek Christian Kluge John Phelan Dr. Jörg Schneider Dr. Wolfgang Strassl Karl Wittmann Munich Re Group Key figures (ifrs) Q Q Change in % Gross premiums written m 10,036 10, Investment result m 2,110 2, Result before impairment losses of goodwill m 1,471 1,137 * 29.4 Taxes on income m * 18.4 Consolidated result m * 41.7 Thereof attributable to minority interests m Earnings per share * 41.4 Combined ratio Reinsurance non-life % Primary insurance property-casualty % * * Adjusted owing to first-time application of ias 19 (rev. 2004) Change in % Investments m 176, , Equity m 25,059 24,397 * 2.7 Net underwriting provisions m 153, ,048 * 0.3 Staff 36,683 37, Share price Munich Re s market capitalisation bn * Adjusted owing to first-time application of ias 19 (rev. 2004).

3 Contents Contents To our shareholders 2 Key parameters 5 Business experience from 1 January to 31 March 2006 Reinsurance 6 Primary insurance 8 Asset management 11 Prospects 14 Financial statements as at 31 March Important dates 39 1

4 To our shareholders To our shareholders Dr. Nikolaus von Bomhard Chairman of Munich Re s Board of Management Dear Shareholders, Nearly three weeks ago, when reporting to you at Munich Re s Annual General Meeting, I said with regard to our Group s performance expectations for the current year that we aimed to achieve a return on risk-adjusted capital of 15% after taxes on income, which would mean a net consolidated result of bn. The figures for the first quarter of 2006 were not available at the time. Nevertheless, I was able to venture the following positive prediction: We are currently on track. Now I can confirm this statement. As things stand, my assumption is that we can meet our targets in the present business year. We are well positioned for this. However, you know my customary and necessary proviso: in insurance business, and especially in reinsurance, the first quarter of the year is not a reliable basis for forecasts of the annual result, given that the bulk of the risk period with all its imponderables still lies ahead of us. At 31 March, for the eleventh time in succession, we are able to report a positive quarterly result this time even an outstanding one. And that is no accident. In reinsurance, we benefited again in the first quarter of 2006 from the excellent quality of our basic business which we have established in recent years. The successful renewal of 66% of our property-casualty reinsurance treaties at 1 January 2006 even slightly enhanced our portfolio. We are thus able to post a first-rate quarterly result even though we were affected more strongly by major losses than in the same period last year. The treaty renewals in Japan and Korea at 1 April have confirmed the positive trend in the outcome of negotiations with our clients, and we expect the renewals in the USA at 1 July to do likewise. 2

5 To our shareholders The primary insurers in our Group also achieved another good result. Unfortunately, however, the political and legislative environment for German life and health insurance is currently clouded by uncertainties that may have a fundamental influence on the future development of these two lines of business. I already addressed this topic at the Annual General Meeting. Nevertheless, I would like to touch on a few individual aspects again here because they involve important determinants for the urgently needed securing of future provision in Germany and thus also for our business. This applies especially to the reform of the health system. Here we face a decision between in the extreme case the virtually complete collectivisation of health insurance on the one hand or development towards more freedom of choice and provident personal responsibility on the other. What is imperative, in my view, is a reform that considers not only the income side and does more than just remedy gaps in financing. Even if more and more sections of the population, i.e. private insureds, are compelled to join the state health system, the financial deficits in a pay-as-you-go health system cannot be overcome for long and without further significant cuts in statutory health insurance benefits. What is needed, apart from a reform of the expenses (which I am pleased to say is already apparent), is a fundamental transformation moving towards a sustainable system financed on a funded basis that is fair to all generations, gives people more freedom of choice, and strengthens personal provision. Private health insurers have gained experience with funded (and therefore demography-resistant) insurance solutions over decades, and this should be put to good use. In life insurance, the changes envisaged in the draft for reforming German insurance contract law based on the judgements of the German Federal Constitutional Court and the Federal Supreme Court appear to be less serious at first glance. But that is not in fact the case. The proposals regarding the participation of policyholders in valuation reserves and the amounts of surrender values undermine the principle of solidarity among the community of insureds which is, after all, the foundation of insurance in favour of individual entitlement. It now looks as if the ministerial draft is being subjected to a thorough reexamination, which is to be greatly welcomed. For the provisions of the existing draft would not be without negative consequences for the extremely important guarantees that life insurers give their clients. Private provision for old age would thus be made more difficult. 3

6 To our shareholders I fervently hope that the grand coalition will succeed in finding solutions for both reforms that make objective sense in view of what is so clearly required, and signal the beginning of a new era of greater personal provision. With such important issues for the future of Germany, all attempts should be resisted to adopt party-political positions for tactical reasons to the detriment of the lasting solutions that are really necessary. Ladies and gentlemen, in conclusion I would like to come back to our quarterly result, which clearly reflects our priorities: we aim to secure the profitability of our business on a lasting basis and reward your investment in Munich Re shares. Yours sincerely, 4

7 Key parameters Key parameters Continuing robust global growth Marked increase in long-term interest rates Better-balanced development of the world economy expected in the future The global economy continued to show robust growth in the period under review, still driven mainly by the USA and China. Economic development was also positive in Japan and, increasingly, in the eurozone as well. Initial estimates point to the us economy having grown strongly again in the first quarter of 2006 compared with the relatively weak previous quarter, with a seasonally adjusted and annualised rate of 4.8% in real terms. Economic data from the eurozone also indicate a consolidation of the economy in the period under review, with the business climate in industry, for example, showing an upward trend in both France and Italy. In Germany, too, the ifo business climate index rose in March for the fourth time in succession, although so far there are scarcely any signs of a fundamental recovery in private consumption. Whilst the positive economic dynamics in Japan prevail, its growth rate for the period under review is likely to be lower than in the surprisingly strong previous quarter. Major impulses for the global economy continue to come from China. The other emerging markets of Asia, eastern Europe and Latin America should also benefit from the still robust global economy. Inflation slackened somewhat in the first quarter worldwide, not least because oil prices stabilised in this period. On the foreign currency markets, the euro gained in value at the beginning of the quarter, but then fell back again to around us$ The Federal Reserve continued its policy of interest-rate increases, and the Federal Funds Rate now stands at 4.75%. The European Central Bank also raised its key interest rate at the beginning of March by 0.25 percentage points to 2.5%. In this environment, longterm interest rates moved upwards in the period under review in both the USA and the eurozone. On the stock markets, the most important European indices and also the us Dow Jones and the Japanese Nikkei 225 advanced considerably. For the rest of the year, we expect a moderate slowdown in the us economy, while growth in the eurozone should pick up somewhat. Altogether, this would mean better-balanced global growth. Significant risks for the world economy remain. These range from geopolitical uncertainties (political situation in the Middle East, strong rise in the oil price) to a greater-than-expected weakening of the us property market, the risk of a marked dollar correction as a result of the very high us current account deficit, a substantial increase in credit spreads, and even a global pandemic. 5

8 Business experience / Reinsurance Business experience from 1 January to 31 March 2006 Reinsurance Renewals at 1 January 2006 promise continuing high earnings potential Premium volume up 2.6% compared with previous year Good combined ratio of 92.2% thanks to excellent basic business, despite higher first-quarter expenditure for major losses than in prior years Satisfying consolidated result of 841m The Munich Re Group s reinsurance business developed very satisfactorily in the first quarter of The excellent operating result of 1,234m (945m) again surpassed the previous year s good figure. This was mainly attributable to our broad basic business, whose current profitability is the result of the consistent steps we have taken in recent years. As at 1 January 2006, some two-thirds of treaty business in property-casualty reinsurance was renewed. The markets remained firm and we were largely able to maintain, and in some cases even improve, the good prices, terms and conditions we had obtained in the renewals of previous years. This stability is essentially due to the large number and size of natural catastrophe losses in the past two years. The heavy burdens clearly demonstrated to all participants that reliable reinsurance coverage is available only at risk-adequate prices, terms and conditions. Especially the companies in our Group continued to adhere to a strictly profit-oriented underwriting policy. Treaties we did not renew because of their unsatisfactory prices, terms and conditions were replaced with attractive new business, thereby further improving the quality our portfolio. For the business renewed as at 1 January 2006, we achieved an average rise in premium rates of 1.7%. As expected, the treaties affected by the 2005 hurricanes saw the biggest price increases, with premiums for offshore energy business registering the highest mark-ups. Overall, we optimised our opportunity and risk profile in property and marine business through price increases and structural changes. In liability reinsurance, prices, terms and conditions remained at the good level achieved in the last few years. Compared with the same quarter last year, premium volume grew marginally by 2.6% to 6.0bn (5.8bn). The euro weakened against many other currencies year on year, causing premium income from our foreigncurrency business to rise. Without currency translation effects, our premium would have been 131m lower. At 1.95bn (1.92bn), premium volume in the life and health segment was stable compared with the first quarter of We anticipate that the establishment of our subsidiary in Moscow will generate new impulses for our life reinsurance business in eastern Europe and central Asia. Increases in premium of 3.3% to 4.0bn (3.9bn) were achieved in property-casualty reinsurance. Gross premiums by division q Special and Financial Risks 8% (7%) Corporate Underwriting/Global Clients 19% (17%) Life and Health 32% (34%) North America 10% (11%) Asia, Australasia, Africa 9% (9%) Europe 1 9% (9%) Europe 2/Latin America 13% (13%) 6

9 Business experience / Reinsurance The combined ratio stood at a very good 92.2% (96.5%) at the end of the first three months of the business year. The burden from several major losses, which accounted for 7.1 (6.9) percentage points of the combined ratio, was thus cushioned by our profitable basic business. All in all, the expenditure for major losses including natural catastrophes totalled 274m (251m). According to current estimates, Cyclone Larry, which caused severe damage in Australia, cost us some 50m. In addition, we were affected by several large losses in liability, marine (container ship fire) and space reinsurance (satellite failure), each ranging between 20m and 40m. Our reinsurers investment result came to 1,055m (1,014m) in the first quarter, reaching the same high level as in the previous year. We took advantage of the favourable stock market situation and, by realising capital gains, improved our result from the sale of investments by 31.9%. Key reinsurance figures Q Q * Gross premiums written bn Loss ratio non-life % Expense ratio non-life % Combined ratio non-life % Thereof natural catastrophes Percentage points Investment result m 1,055 1,014 Result before impairment losses of goodwill m 1, Consolidated result m Thereof attributable to minority interests m * Adjusted owing to first-time application of ias 19 (rev. 2004) Investments bn Net underwriting provisions bn

10 Business experience / Primary insurance Primary insurance Gross premiums of 4.6bn (4.9bn), reflecting sale of Karlsruher Insurance Group and Nieuwe Hollandse Lloyd Verzekerungsgroep (nhl) in 2005 Combined ratio hardly affected by long winter Further year-on-year improvement in consolidated result to 138m The Munich Re Group s primary insurers, essentially comprising the ergo Insurance Group, Europäische Reiseversicherung and the Watkins Syndicate, posted a good operating result of 232m (200m) in the first quarter of The consolidated result of 138m was higher than in the same quarter last year (121m). Premium development in the individual classes of business was subject to countervailing effects. As a whole, premium fell to 4.6bn (4.9bn). The sale of Karlsruher Versicherungsgesellschaft impacted the result in the life and health segment, where premium income reduced by 246m to 2.9bn (3.1bn). Adjusted to eliminate the effect of the change in the consolidated group, premium income would have grown by 0.2%. The property-casualty segment (including legal expenses insurance) recorded a decrease in premium of 3.5% to 1.7bn (1.8bn), owing to the sale of ergo s Dutch subsidiary nhl as at 30 June 2005 and the market-wide lowering of premiums in German motor insurance a market approach with negative implications for profitability. We therefore refrained from writing inadequately priced business, although as our market share in motor insurance is lower than the market average, this trend impacts us to a lesser degree than other players. Gross premiums by class of insurance q Property-casualty 32% (32%) Life 34% (37%) Legal expenses 5% (5%) Health 29% (26%) In the first quarter of 2006, gross premiums written by our life insurers totalled 1.6bn a decline of 16.2%. In Germany, they decreased by 18.2%, owing mainly to the sale of Karlsruher Insurance Group. The reduction of 3.9% in foreign business derives in particular from the figures for Luxembourg, where new business written in 2004 was not accounted for until the first quarter of New German business in the first three months of 2006 fell by 5.2% overall compared with the same quarter last year, since the value of new business in the first three months of 2005 was positively impacted by some policies taken out at the end of 2004 (when business was very favourable) not being placed to account until the first quarter of Nevertheless, between January and March 2006 sales were markedly better than in the same period last year, especially in the field of annuity and Riester pension products, where we recorded an appreciable increase. New Riester business grew substantially both in terms of premium volume and policy numbers, with a total of 35,000 Riester policies sold in the first three months of the year. This growth, which was generated by agent and bank sales, was favoured by the third subsidisation stage commencing as at 1 January 2006 and emphasised once again the importance of the latter sales channel for private pension products. Our premium in health insurance rose by 4.0% in the first quarter of 2006 to 1.32bn (1.27bn), driven by good new business and low lapse rates. Premium adjustments for business in force were significantly lower at the beginning of the year than in the previous year. We further expanded new business with supplementary health insurance, above all in direct insurance, in part as a consequence of the reductions in state health insurance coverage and our successful cooperation with statutory health insurers. 8

11 Business experience / Primary insurance In supplementary health insurance, the number of policyholders compared with the first quarter of 2005 rose by over 15%, whereas in comprehensive private health insurance the figure was up 0.9%. The ongoing political debate about a restructuring of the German health insurance system continues to cause uncertainty among clients, thus curbing the growth that would normally be present in this segment. As at the end of the first quarter of 2006, Globale Krankenversicherung was merged into dkv, which had acquired it along with Zürich Krankenversicherung in The two companies have therefore been successfully integrated into dkv as scheduled. In property-casualty insurance, premium income was down to 1.5bn (1.6bn) in the first three months. In other countries, ergo s business showed a decrease of 4.2%. Adjusted to eliminate the effects of the nhl sale, premium volume abroad would have risen by 24.8%, largely thanks to good growth in Poland, the Baltic States and Italy. German business shrank by 3.0%, mainly owing to motor insurance, where the persistently keen competition put prices under pressure. Since our market share in this line of business is below the market average, however, we are much less affected by the current situation and its repercussions for profitability than other players. Moreover, loss frequency has been falling steadily in recent years, so that more and more of our clients are being assigned to higher no-claims bonus classes a circumstance which, although gratifying, nevertheless also entails lower premium income. The trend towards falling premiums is likewise present in German industrial property business. The distinct pressure on prices prevailing since the end of 2004 a consequence of the exceptionally low major loss expenditure in the years 2002 to 2004 continued in the 2005/2006 renewals, although the incidence of major losses in the market had returned to normal in By contrast, premiums in ergo s personal accident and liability insurance were up somewhat on the previous year, by 1.0% and 1.1% respectively. ergo s premium volume in legal expenses insurance showed a year-on-year increase of 2.7%. Whereas gross premiums written fell by 0.9% in Germany, they climbed by 6.7% in other countries, totalling 234m (227m) altogether. The heavy winter snows did not have any noticeable effect on overall claims development. At a good 97.0% (99.0%), the combined ratio (including legal expenses insurance) was even lower than in the first quarter of 2005, which had benefited from a number of special factors. It was thus better than for the previous business year as a whole. The investment result fell to 1.1bn compared with 1.5bn in the first quarter of 2005, especially owing to the rise in interest rates, which led to a decline in the value of the derivatives used to hedge against falling interest rates, necessitating a write-down of these investments. Regular investment income, adjusted to take account of the sale of the Karlsruher Insurance Group and nhl, developed favourably but could not offset this negative effect. Key primary insurance figures Q Q * Gross premiums written bn Loss ratio property-casualty % Expense ratio property-casualty % Combined ratio property-casualty % Combined ratio legal expenses insurance % Combined ratio property-casualty including legal expenses insurance % Investment result m 1,064 1,456 Result before impairment losses of goodwill m Consolidated result m Thereof attributable to minority interests m * Adjusted owing to first-time application of ias 19 (rev. 2004) Investments bn Net underwriting provisions bn

12 Business experience / Primary insurance Key figures of the ergo Insurance Group Q Q * Gross premiums written bn Loss ratio property-casualty % Expense ratio property-casualty % Combined ratio property-casualty % Combined ratio legal expenses insurance % Combined ratio property-casualty including legal expenses insurance % Investment result m 1,125 1,354 Result before impairment losses of goodwill m Consolidated result m Thereof attributable to minority interests m 14 * Adjusted owing to first-time application of ias 19 (rev. 2004) Investments m 101, ,193 Equity m 4,102 4,117 Net underwriting provisions m 92,035 91,133 10

13 Business experience / Asset management Asset management Stock markets on the up Investment result at a high level Asset management of ergo Trust and meag merged in real estate business The stock markets developed pleasingly in the first quarter. Strong inflows of liquidity and several announcements of major acquisitions caused the European equity market to advance by 7.7%, measured in terms of the euro stoxx 50. This very good performance meant that the euro stoxx passed 3,870 points in the first quarter, its highest level since 2001, and closed at 3,854 points. Compared with most of the world s other equity markets, the us stock markets again recorded more restrained price increases. The lead index for us shares, the s&p 500, gained 3.7% in the first quarter, finishing on 1,295 points at the end of March, whereas the Japanese Nikkei 225 registered an increase of 5.9% in the same period. On the European bond markets, yields for all terms rose in the first quarter of The European Central Bank (ecb) raised its key interest rates by 25 basis points to 2.50%. Yields on ten-year German government bonds, showing an increase of 47 basis points since January, rose to 3.77%. For the rest of the year, we expect that the ecb will raise interest rates further and that yields will continue their upward trend. A similar picture is emerging in the USA, which is farther advanced in the interest-rate cycle. The increase in the Federal Funds Rate by 25 basis points to 4.75% caused money market rates and yields on long-term bonds to rise. By the end of March, the yield on ten-year us government bonds was up 45 basis points to 4.85%. On the foreign currency markets, the exchange rates for the main currencies did not show any significant movement in the first three months. The rate for the us dollar against the euro on 31 March was us$ 1.21, slightly down on its level at the beginning of the year. The Japanese yen traded at 142 against the euro at the end of the quarter. As at 31 March 2006, the Munich Re Group s investments amounted to 176.8bn (177.2bn), representing a slight decrease of 0.2% compared with year-end Taking into account off-balance-sheet valuation reserves, the fair value of investments totalled 178.5bn (179.6bn). 11

14 Business experience / Asset management Investment mix Reinsurance Primary insurance Asset management Total Life and health Property-casualty Life and health Property-casualty All figures in m * Land and buildings, including buildings on third-party land ,999 4, ,626 5,798 Investments in affiliated companies Investments in associates ,152 1,128 Loans ,492 23,192 1,323 1, ,020 24,795 Other securities held to maturity Other securities available for sale Fixed-interest 16,638 17,478 28,173 27,487 48,159 50,106 3,955 4, ,950 99,106 Non-fixed-interest 5,380 5,883 7,860 6,912 11,609 10,198 2,112 2, ,969 25,346 Other securities held for trading Fixed-interest , Non-fixed-interest Derivatives Deposits retained on assumed reinsurance 5,590 6,740 7,316 7, ,145 14,581 Other investments , ,075 2,479 Investments for the benefit of life insurance policyholders who bear the investment risk 1,554 1,430 1,554 1,430 Total 28,840 31,387 46,130 44,270 91,660 91,592 8,693 9,090 1, , ,171 * After elimination of intra-group reinsurance across segments. We have invested over 70% of our Group s assets in fixed-interest investments. Our equity-backing ratio at 31 March, i.e. the proportion of investments in equities and shareholdings, amounted to 15.2% on a book-value basis, without taking hedging transactions into account. Distribution of investments as at ( ) Miscellaneous investments 11% (12%) Shares and equity funds 14% (13%) Real estate 3% (3%) Participating interests 1% (1%) Loans 15% (14%) Fixed-interest securities 56% (57%) 12

15 Business experience / Asset management Whilst the prices of our long-term interest-bearing securities fell owing to the rise in interest rates, the stock market performance had a gratifying effect on the valuation reserves of our non-fixed-interest securities. Net unrealised gains on non-fixed-interest securities available for sale grew by 13.7% to 8.3bn. Given the opposite trend in the balance sheet valuation reserves of our fixed-interest securities, net unrealised gains on securities available for sale decreased overall by 12.2% to 9.6bn between January and March. Our investment result amounted to 2.1bn (2.5bn) in the first quarter. The reduction is primarily due to a negative contribution from hedging transactions as a consequence of increased share prices and higher interest rates. But we took advantage of the favourable stock market situation to sell shares. As in the previous year, this led to an extremely good result from the disposal of investments, totalling 924m (909m). At the beginning of the year, we merged the asset management of ergo Trust with that of meag in Munich, thus bundling the Munich Re Group s real estate activities and competence in meag. With this step, we intend to selectively expand our real estate business with institutional clients outside the Munich Re Group. Altogether, meag had assets under management of 180.4bn (179.3bn) as at 31 March 2006, 170.1bn (168.7bn) of which derives from the Munich Re Group s own investments. Assets managed by meag for institutional clients outside the Group at the end of the quarter totalled 7.6bn (7.2bn), representing an increase of 5.5%. The investments managed for private clients at 31 March 2006 amounted to 2.7bn (3.4bn). The change is due to the fact that ergo Trust s private-client business was not transferred to meag in connection with the integration of ergo Trust into meag, but remained with ergo. 13

16 Prospects Prospects Satisfying outcome of treaty renewals in reinsurance at 1 April After sale of Karlsruher Insurance Group, premium volume of between 37bn and 38bn expected Year-end target of return on risk-adjusted capital (rorac) of 15% after taxes on income There are various reasons why the quarterly results of insurance companies, including Munich Re, are not a suitable indicator for the results of the business year as a whole. Losses from natural catastrophes and other major losses have a disproportionate impact on the result of the reporting period in which they randomly and unforeseeably occur. Late-reported claims for major loss events can also lead to substantial fluctuations in individual quarterly results. Furthermore, gains and losses on the disposal of investments and write-downs of investments do not follow a regular pattern. Consequently, our quarterly figures do not provide more than significant pointers to the result for the year that may be expected. Reinsurance Following the very positive outcome of the treaty renewals at 1 January 2006, we again focused on negotiating riskadequate prices, terms and conditions in the renewals at the beginning of April in Japan, Korea and the USA and with some global clients. After the price increases in lossaffected sectors last year, we generally experienced stable development and a market approach commensurate with the risks. We succeeded in maintaining our risk-adequate prices and even improving them slightly in some cases. We have selectively expanded our market share, so that overall we expect a marginal rise in premium income. In particular, our financial strength and close relationships with clients have enabled us to acquire profitable new business and increase shares in lucrative treaties. We expect prices, terms and conditions to remain firm in the renewals for parts of our us and Latin American business at 1 July and for the rest of the us business at 1 October. This applies especially to the renewal of a large portion of us natural catastrophe covers at 1 July, given the high losses of the 2005 hurricane season, the more realistic assumptions of the adjusted risk models for the us hurricane regions, and the consequently higher capital requirements for the risk assumed in connection with natural catastrophes. In life reinsurance, we anticipate that gross premiums written will maintain last year s level or rise slightly in the current business year, but that we will not be able to repeat the strong growth of the previous years. In the health sector, many avenues for profitable future growth are currently opening up. To tap these opportunities in primary insurance and reinsurance, Munich Re and dkv are working together more closely in specific foreign markets. If claims costs remain within normal bounds and we are not affected by major burdens from earlier underwriting years, our target for 2006 is a combined ratio of below 97%. Altogether, we anticipate a profit for the year in reinsurance of around bn. Barring any exceptional movements in exchange rates, our gross premium income will probably remain stable in 2006 compared with last year, in the range of 22 23bn. Primary insurance There should be increased demand for private-provision products in life insurance in 2006, from which annuity insurance in particular could benefit. On top of this, we expect a further rise in the sale of Riester and basic pension products. All in all, our assumption is that with higher new business the level of gross premiums written will remain more or less constant, whilst total premium income (including the savings premiums of unit-linked life insurance and capitalisation products like Riester pensions) should increase slightly. With demand for private provision growing, we should be able to expand sales of supplementary health insurances. The ongoing political debate about the reform of the German health system will initially continue to engender uncertainty in the area of comprehensive health cover and curb business growth. Altogether, we expect small increases in premium income in health insurance. In the property-casualty segment, overall economic development will again fail to provide any strong impulses. In this environment, with only very moderate growth, premium income should tend to stay at the same level, given that we intend to stick closely to our profit-oriented underwriting policy. In legal expenses insurance, we see good medium-term opportunities in the field of legal advice, which is increasingly being offered as a supplement to purely financial coverage. Premium income should rise somewhat, mainly due to growth abroad. Overall, we assume that gross premiums written in primary insurance for the year 2006 will total between 16.5bn and 17.0bn, thus remaining fairly stable when adjusted for the sale of the Karlsruher Insurance Group. With another combined ratio of below 95%, we aim to achieve a profit for the year in the range of 600m to 700m. 14

17 Prospects Munich Re Group We project that the Munich Re Group will record total gross consolidated premium income of between 37bn and 38bn in 2006, i.e. about the same level as last year after taking into account the sale of the Karlsruher Insurance Group. The expectation for our investments is a return of 4.5% on their average market value. Our objective is appropriate profitability of the capital employed: with our consolidated result, we aim to earn a return on risk-adjusted capital (rorac) of 15%. On the basis of our risk-based capital at the beginning of the year and our capitalisation at 31 December 2005, this corresponds to a consolidated profit for the year of between 2.6bn and 2.8bn, an ambitious but attainable target given normal parameters, as experienced in the first quarter of Munich, May 2006 The Board of Management 15

18 Consolidated balance sheet Consolidated balance sheet as at 31 March 2006 Assets * Change A. Intangible assets m m m m m % I. Goodwill 3,233 3, II. Other intangible assets 1,029 1, B. Investments 4,262 4, I. Land and buildings, including buildings on third-party land 5,626 5, II. Investments in affiliated companies and associates 1,299 1, III. Loans 26,020 24,795 1, IV. Other securities 1. Held to maturity Available for sale 123, , Held for trading 1,805 1, , , V. Deposits retained on assumed reinsurance 13,145 14,581 1, VI. Other investments 3,075 2, , , C. Investments for the benefit of life insurance policyholders who bear the investment risk 1,554 1, D. Ceded share of underwriting provisions 7,146 7, E. Receivables 8,404 9,648 1, F. Cash with banks, cheques and cash in hand 2,165 2, G. Deferred acquisition costs Gross 8,424 8, Ceded share Net 8,329 8, H. Deferred tax 5,895 5, I. Other assets 3,618 3, Total assets 216, ,737 2, * Adjusted owing to first-time application of ias 19 (rev. 2004). Details can be found in the notes on recognition and measurement. 16

19 Consolidated balance sheet Equity and liabilities * Change A. Equity m m m m % I. Issued capital and capital reserve 7,388 7,388 II. Retained earnings 10,485 7,777 2, III. Other reserves 5,826 6, IV. Consolidated result attributable to Munich Re equity holders 959 2,679 1, V. Minority interests ,059 24, B. Subordinated liabilities 3,402 3, C. Gross underwriting provisions I. Unearned premiums 6,879 6, II. Provision for future policy benefits 93,823 94, III. Provision for outstanding claims 48,528 49, IV. Other underwriting provisions 9,863 10, , ,512 1, D. Gross underwriting provisions for life insurance policies where the investment risk is borne by the policyholders 1,700 1, E. Other accrued liabilities 5,094 4, F. Liabilities I. Notes and debentures 1,054 1, II. Deposits retained on ceded business 2,380 3,392 1, III. Other liabilities 11,308 12, ,742 16,777 2, G. Deferred tax liabilities 7,524 7, Total equity and liabilities 216, ,737 2, * Adjusted owing to first-time application of ias 19 (rev. 2004). 17

20 Consolidated income statement Consolidated income statement for the period 1 January to 31 March 2006 Items Q Q Q Q * Change m m m m m % Gross premiums written 10,036 10, Earned premiums Gross 9,323 9, Ceded Net 8,878 8, Investment result 2,110 2, Thereof: Income from associates Other income Total income (1 3) 11,419 11, Net expenses for claims and benefits Gross 7,715 8, Ceded share Net 7,382 7, Operating expenses Gross 2,221 2, Ceded share Net 2,093 2, Other expenses Total expenses (4 6) 9,948 10, Result before impairment losses of goodwill 1,471 1, Impairment losses of goodwill 9. Operating result 1,471 1, Finance costs Taxes on income Consolidated result Thereof: Attributable to Munich Re equity holders Attributable to minority interests % Earnings per share * Adjusted owing to first-time application of ias 19 (rev. 2004). 18

21 Consolidated income statement Consolidated income statement (quarterly breakdown) Items Q Q Q , 2 Q Q m m m m m Gross premiums written 10,036 9,574 9,245 9,220 10, Earned premiums Gross 9,323 9,999 9,434 9,548 9,270 Ceded Net 8,878 9,406 8,934 9,053 8, Investment result 2,110 2,766 3,078 2,517 2,457 Thereof: Income from associates Other income Total income (1 3) 11,419 12,527 12,328 12,046 11, Net expenses for claims and benefits Gross 7,715 8,946 9,981 8,451 8,182 Ceded share Net 7,382 8,230 9,158 8,151 7, Operating expenses Gross 2,221 2,575 2,300 2,382 2,352 Ceded share Net 2,093 2,490 2,142 2,279 2, Other expenses Total expenses (4 6) 9,948 11,272 11,672 10,944 10, Result before impairment losses of goodwill 1,471 1, ,102 1, Impairment losses of goodwill Operating result 1,471 1, ,098 1, Finance costs Taxes on income Consolidated result 979 1, Thereof: Attributable to Munich Re equity holders 959 1, Attributable to minority interests Earnings per share Adjusted owing to first-time application of ias 19 (rev. 2004). 2 Adjusted owing to first-time application of ias 1 (rev. 2003) in the business year Details can be found in the notes on recognition and measurement in our Group Annual Report

22 Group statement of changes in equity Group statement of changes in equity Equity attributable to Munich Re equity holders Minority Total interests 2 equity All figures in m Issued Capital Retained earnings Other reserves Consolicapital reserve dated result Retained Own Unrealised Reserve Valuation earnings shares gains and from result from before held losses currency cash flow deduction translation hedges of own shares Status at ,800 7, , , ,397 Currency translation Allocation to retained earnings 2,679 2,679 Change in consolidated group Change resulting from valuation at equity 6 6 Unrealised gains and losses on investments Consolidated result Changes from cash flow hedges 3 3 Other changes Status at ,800 10, , ,059 1 Adjusted owing to first-time application of ias 19 (rev. 2004). 2 Adjusted owing to first-time application of ias 1 (rev. 2003) in the business year Details can be found in the notes on recognition and measurement in our Group Annual Report

23 Group statement of changes in equity Group statement of changes in equity Equity attributable to Munich Re equity holders Minority Total interests 2 equity All figures in m Issued Capital Retained earnings Other reserves Consolicapital reserve dated result Retained Own Unrealised Reserve Valuation earnings shares gains and from result from before held losses currency cash flow deduction translation hedges of own shares Status at ,800 7, , , ,492 Currency translation Allocation to retained earnings 1,833 1,833 Change resulting from valuation at equity Unrealised gains and losses on investments Consolidated result Other changes Status at ,800 8, , ,084 1 Adjusted owing to first-time application of ias 19 (rev. 2004). 2 Adjusted owing to first-time application of ias 1 (rev. 2003) in the business year Details can be found in the notes on recognition and measurement in our Group Annual Report

24 Consolidated cash flow statement Consolidated cash flow statement for the period 1 January to 31 March 2006 Q Q * m m Consolidated result Net change in underwriting provisions 415 3,524 Change in deferred acquisition costs Change in deposits retained and accounts receivable and payable Change in other receivables and liabilities Gains and losses on the disposal of investments Change in securities held for trading Change in other balance sheet items Other income/expenses without impact on cash flow I. Cash flows from operating activities 2,055 2,428 Inflows from the sale of consolidated companies 10 Outflows from the acquisition of consolidated companies 23 Change from the acquisition, sale and maturities of other investments 1, Change from the acquisition and sale of investments for unit-linked life insurance Other II. Cash flows from investing activities 1,998 1,667 Inflows from increases in capital Dividend payments Change from other financing activities III. Cash flows from financing activities Cash flows for the business year (I+II+III) Effects of exchange rate changes on cash 5 5 Cash at the beginning of the business year 2,337 2,027 Cash at the end of the business year 2,165 2,628 Additional information Income tax paid (net) Interest paid * Adjusted owing to first-time application of ias 19 (rev. 2004). 22

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26 Segment reporting Segment reporting Assets Reinsurance Life and health Property-casualty * * m m m m A. Intangible assets ,327 1,374 B. Investments I. Land and buildings, including buildings on third-party land II. Investments in affiliated companies and associates 2,652 2,910 3,416 3,238 III. Loans IV. Other securities 1. Held to maturity 2. Available for sale 22,018 23,361 36,033 34, Held for trading ,139 23,507 37,001 35,099 V. Deposits retained on assumed reinsurance 7,763 9,089 10,058 10,205 VI. Other investments ,646 36,800 52,159 50,163 C. Investments for the benefit of life insurance policyholders who bear the investment risk D. Ceded share of underwriting provisions 1,079 1,647 4,017 4,077 E. Other segment assets 6,076 6,177 9,287 10,426 Total segment assets 41,091 44,891 66,790 66,040 * Adjusted owing to first-time application of ias 19 (rev. 2004). 24

27 Segment reporting Primary insurance Asset management Consolidation Total Life and health Property-casualty * * * * * m m m m m m m m m m 1,742 1, ,262 4,300 4,000 4, ,626 5, ,434 3, ,281 9,431 1,299 1,312 26,106 24,808 1,392 1, ,825 2,311 26,020 24, ,768 60,304 6,113 6, , , ,805 1,879 60,481 61,453 6,468 6, , , ,931 4,960 13,145 14, , , ,325 3,075 2,479 92,398 92,292 12,800 12,207 1,627 1,012 17,389 16, , ,741 1,554 1,430 1,554 1,430 6,459 6,817 1,914 1,701 6,323 6,262 7,146 7,980 10,953 11,097 3,717 3, ,824 2,607 28,411 29, , ,384 19,351 18,827 1,835 1,221 25,559 25, , ,737 25

28 Segment reporting Segment reporting Equity and liabilities Reinsurance Life and health Property-casualty * * m m m m A. Subordinated liabilities 1,339 1,453 1,670 1,561 B. Gross underwriting provisions I. Unearned premiums ,105 4,865 II. Provision for future policy benefits 17,194 18, III. Provision for outstanding claims 5,554 5,493 37,199 38,080 IV. Other underwriting provisions ,793 25,265 43,303 43,837 C. Gross underwriting provisions for life insurance policies where the investment risk is borne by the policyholders D. Other accrued liabilities ,539 1,458 E. Other segment liabilities 3,477 3,807 7,252 8,397 Total segment liabilities 29,399 31,264 53,764 55,253 * Adjusted owing to first-time application of ias 19 (rev. 2004). 26

29 Segment reporting Primary insurance Asset management Consolidation Total Life and health Property-casualty * * * * * m m m m m m m m m m ,402 3, ,838 1, ,879 6,153 80,469 79, ,781 4,803 93,823 94,445 1,920 1,993 4,788 4, ,528 49,380 8,875 9, ,863 10,534 91,407 91,395 6,968 6,314 6,378 6, , ,512 1,700 1,516 1,700 1,516 1,214 1,195 1,577 1, ,094 4,926 14,460 14,698 5,345 5,319 1,614 1,035 9,882 9,278 22,266 23, , ,823 14,293 13,584 1,665 1,101 16,369 15, , ,340 Equity 25,059 24,397 Total equity and liabilities 216, ,737 27

30 Segment reporting Segment reporting Income statement Life and health Reinsurance Property-casualty Q Q * Q Q * m m m m Gross premiums written 1,945 1,924 4,045 3,917 Thereof: From insurance transactions with other segments From insurance transactions with external third parties 1,759 1,677 3,710 3, Earned premiums Gross 2,009 1,912 3,720 3,537 Ceded Net 1,888 1,815 3,470 3, Investment result Thereof: Income from associates Other income Total income (1 3) 2,349 2,298 4,283 3, Net expenses for claims and benefits Gross 1,569 1,655 2,408 2,366 Ceded share Net 1,466 1,533 2,248 2, Operating expenses Gross , Ceded share Net Other expenses Total expenses (4 6) 2,052 2,069 3,346 3, Result before impairment losses of goodwill Impairment losses of goodwill 9. Operating result Finance costs Taxes on income Consolidated result Thereof: Attributable to Munich Re equity holders Attributable to minority interests * Adjusted owing to first-time application of ias 19 (rev. 2004). 28

31 Segment reporting Primary insurance Asset management Consolidation Total Life and health Property-casualty Q Q * Q Q * Q Q * Q Q * Q Q * m m m m m m m m m m 2,856 3,102 1,718 1, ,036 10, ,855 3,101 1,712 1,775 10,036 10,160 2,799 3,055 1,198 1, ,323 9, ,575 2, ,878 8, , ,110 2, ,647 4,277 1,314 1, ,419 11,592 3,274 3, ,715 8, ,081 3, ,382 7, ,221 2, ,093 2, ,589 4,179 1,140 1, ,948 10, ,471 1, ,471 1,

32 Segment reporting Segment reporting Investments * Reinsurance Primary insurance Asset management Total m m m m m m m m Europe 43,494 43,942 97,447 97,902 1, , ,648 North America 26,748 27,360 1,563 1, ,391 28,809 Asia and Australasia 3,198 2,776 1,044 1, ,247 3,805 Africa, Near and Middle East Latin America ,075 Total 74,970 75, , ,682 1, , ,171 * After elimination of intra-group transactions across segments. Gross premiums written * Reinsurance Primary insurance Total Q Q Q Q Q Q m m m m m m Europe 2,779 2,861 4,470 4,826 7,249 7,687 North America 1,735 1, ,787 1,649 Asia and Australasia Africa, Near and Middle East Latin America Total 5,469 5,284 4,567 4,876 10,036 10,160 * After elimination of intra-group transactions across segments. 30

33 Notes to the consolidated financial statements Notes Recognition and measurement This quarterly report as at 31 March 2006 has been prepared in accordance with International Financial Reporting Standards (ifrss) as applicable in the European Union. We have complied with all new and amended ifrss whose application is compulsory for the first time for periods beginning on 1 January Otherwise, the same principles of recognition, measurement and consolidation have been applied as in our consolidated financial statements as at 31 December In accordance with ias 34.41, greater use is made of estimation methods and planning data in preparing our quarterly figures than in our annual financial reporting. The following effects from the first-time application of new or amended ifrss are of significance: ias 19, Employee Benefits, was amended in December 2004 and now provides the option of recognising actuarial gains and losses from defined benefit plans directly in equity, outside profit or loss. We are taking advantage of this option as from 1 January Hitherto, actuarial gains or losses were recognised as income or expense if at the end of the previous reporting period they exceeded the greater of 10% of the present value of the vested benefits or 10% of the fair value of the plan assets (corridor method). In accordance with ias 8 and the transitional provisions, the figures for the previous year have been adjusted retrospectively, without impact on profit or loss. This has the following effects on the consolidated balance sheet as at 31 December 2005: Assets Effect from as ias 19 originally (rev. 2004) All figures in m recognised E. Receivables 9, ,648 H. Deferred tax 5, ,213 Total assets 218, ,737 Equity and liabilities Effect from as ias 19 originally (rev. 2004) All figures in m recognised A. Equity II. Retained earnings 8, ,777 III. Other reserves 6, ,100 IV. Consolidated result attributable to Munich Re equity holders 2, ,679 V. Minority interests C. Gross underwriting provisions IV. Other underwriting provisions 10, ,534 E. Other accrued liabilities 4, ,926 Total equity and liabilities 218, ,737 31

34 Notes to the consolidated financial statements The effects on the consolidated income statement for the business year 2005 are as follows: Items 2005 Effect from as ias 19 originally (rev. 2004) All figures in m recognised Expenses for claims and benefits Gross 35, ,560 Ceded share 2,208 2,208 Net 33, , Operating expenses Gross 9, ,609 Ceded share Net 9, , Other expenses 1, ,826 Total expenses (4 6) 44, , Result before impairment losses of goodwill 4, , Operating result 4, , Taxes on income 1, , Consolidated result 2, ,751 Thereof: Attributable to Munich Re equity holders 2, ,679 Attributable to minority interests Owing to a change in preparing the ifrs figures of the consolidated special funds, retained earnings were reduced in a one-off adjustment by 24m. Changes in the consolidated group In December 2005, ergo Versicherungsgruppe ag signed agreements with gfkl Financial Services ag under which the latter would acquire its majority stake in the ada-has Group, an it systems specialist. The governing bodies and cartel authorities have given the formal approvals still outstanding when the agreements were signed, so that the sale was completed in the first quarter of There were no other significant changes in the group of consolidated companies in the first three months of Foreign currency translation Munich Re s presentation currency is the euro ( ). The following table shows the exchange rates of the most important currencies for our business: Currency translation rate Balance sheet Income statement Rate for Q Q Australian dollar Canadian dollar Pound sterling Rand Swiss franc US dollar Yen

35 Notes to the consolidated financial statements Intangible assets All figures in m I. Goodwill 3,233 3,264 II. Other intangible assets 1,029 1,036 Software Purchased insurance portfolios Other Total 4,262 4,300 Other securities Available for sale Carrying amounts Unrealised Amortised cost gains/losses All figures in m Fixed-interest securities 96,950 99,106 1,310 3,652 95,640 95,454 Non-fixed-interest securities Shares 24,361 22,523 7,874 6,874 16,487 15,649 Investment funds 1,964 1, ,548 1,575 Others ,969 25,346 8,321 7,321 18,648 18,025 Total 123, ,452 9,631 10, , ,479 Minority interests These are mainly minority interests in the ergo Insurance Group. All figures in m * Unrealised gains and losses Consolidated result Other equity Total * Adjusted owing to first-time application of ias 19 (rev. 2004) and the first-time application of ias 1 (rev. 2003) in the business year Subordinated liabilities All figures in m Munich Re Finance b.v., Amsterdam 6.75%, 3,000m, Bonds 2003/2023 s&p rating: a 2,976 2,975 Munich Re Finance b.v., Amsterdam 7.625%, 300m, Bonds 2003/2028 s&p rating: a Total 3,402 3,408 33

36 Notes to the consolidated financial statements Notes and debentures All figures in m American Re Corporation, Princeton 7.45%, us$ 500m, Senior Notes 1996/2026 Rating s&p: bbb ergo International ag, Düsseldorf 2.25%, 345m, Bonds Exchangeable into e.on ag Shares 2001/ %, 345m, Bonds Exchangeable into Sanofi-Aventis s.a. Shares 2001/2006 Rating s&p: a Total 1,054 1,097 Premiums Reinsurance Primary insurance Total Life and health Property-casualty Life and health Property-casualty All figures in m * Q Q Q Q Q Q Q Q Q Q Gross premiums written 1,759 1,677 3,710 3,607 2,855 3,101 1,712 1,775 10,036 10,160 Change in unearned premiums Gross Gross earned premiums 1,820 1,669 3,512 3,309 2,798 3,055 1,193 1,237 9,323 9,270 Ceded premiums written Change in unearned premiums Ceded share Earned premiums Ceded Net earned premiums 1,699 1,572 3,263 3,064 2,766 3,007 1,150 1,174 8,878 8,817 * After elimination of intra-group transactions across segments. 34

37 Notes to the consolidated financial statements Investment result by type of investment and segment Reinsurance Primary insurance Asset management Total Life and health Property-casualty Life and health Property-casualty All figures in m * Q Q Q Q Q Q Q Q Q Q Q Q Land and buildings, including buildings on third-party land Investments in affiliated companies Investments in associates Loans Other securities held to maturity Other securities available for sale Fixed-interest ,026 1,286 Non-fixed-interest , Other securities held for trading Fixed-interest Non-fixed-interest Derivatives Deposits retained on assumed and ceded reinsurance, and other investments Investments for the benefit of life insurance policyholders who bear the investment risk Expenses for the management of investments, other expenses Total , ,110 2,457 * After elimination of intra-group transactions across segments. 35

38 Notes to the consolidated financial statements Investment income and expenses by segment Reinsurance Primary insurance Asset management Total Life and health Property-casualty Life and health Property-casualty All figures in m * Q Q Q Q Q Q Q Q Q Q Q Q Investment income Regular income , ,770 1,789 Income from write-ups Gains on the disposal of investments ,163 1,028 Other income ,475 1, ,029 2,901 Investment expenses Write-downs of investments Losses on the disposal of investments Management expenses, interest charges and other expenses Total , ,110 2,457 * After elimination of intra-group transactions across segments. Net expenses for claims and benefits Reinsurance Primary insurance Total Life and health Property-casualty Life and health Property-casualty All figures in m * Q Q Q Q Q Q Q Q Q Q Gross expenses for claims and benefits 1,406 1,402 2,299 2,259 3,278 3, ,715 8,182 Ceded share of expenses for claims and benefits Net expenses for claims and benefits 1,302 1,280 2,139 2,130 3,248 3, ,382 7,813 * After elimination of intra-group transactions across segments. 36

39 Notes to the consolidated financial statements Operating expenses Reinsurance Primary insurance Total Life and health Property-casualty Life and health Property-casualty All figures in m 1 Q Q Q Q Q Q Q Q Q Q Acquisition costs Management expenses Amortisation of pvfp Reinsurance commission and profit commission ,297 1,211 Gross operating expenses ,221 2,352 Ceded share of acquisition costs Commission received on ceded business Operating expenses Ceded share Net operating expenses ,093 2,254 1 After elimination of intra-group transactions across segments. 2 Adjusted owing to first-time application of ias 19 (rev. 2004). Number of staff The number of staff employed by the Group as at 31 March 2006 totalled 25,796 (27,063) in Germany and 10,887 (10,890) in other countries Reinsurance companies 6,774 6,798 Primary insurance companies 29,193 30,465 Asset management Total 36,683 37,953 Contingent liabilities, other financial commitments In comparison with the situation at 31 December 2005, there have been no material changes in financial commitments of significance for the assessment of the Group s financial position. No contingent liabilities have been entered into for the benefit of Board members. Earnings per share The earnings per share figure is calculated by dividing the consolidated result for the reporting period by the weighted average number of shares. Q Q * Consolidated result attributable to Munich Re equity holders m Weighted average number of shares 228,007, ,519,407 Earnings per share * Adjusted owing to first-time application of ias 19 (rev. 2004). 37

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41 Important dates Important dates 3 August 2006 Interim report at 30 June August 2006 Half-year press conference 7 November 2006 Interim report at 30 September March 2007 Balance sheet meeting of the Supervisory Board 20 March 2007 Annual report for the business year March 2007 Balance sheet press conference 21 March 2007 Analysts conference 26 April 2007 Annual General Meeting 8 May 2007 Interim report at 31 March August 2007 Interim report at 30 June November 2007 Interim report at 30 September 2007 The official German original of this quarterly report is also available from the Company. In addition, you will find copies of our annual reports and interim reports, along with further current information about Munich Re and its shares, on our internet website ( Service for investors and analysts If you have general questions on Munich Re shares, please use our shareholder hotline: Tel.: (01802) shareholder@munichre.com If you are an institutional investor or analyst, please contact our investor relations team: Tel.: +49(89) Fax: +49(89) investorrelations@munichre.com Service for media Journalists receive information from our Press Division: Tel.: +49(89) Fax: +49(89) presse@munichre.com 39

42 May 2006 Münchener Rückversicherungs-Gesellschaft Königinstrasse München Germany Tel.: +49(89) Fax: +49(89) Responsible for content Central Division: Group Accounting Printed by Druckerei Fritz Kriechbaumer Wettersteinstrasse Taufkirchen, Germany 40

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44 2006 Münchener Rückversicherungs-Gesellschaft Königinstrasse München Germany Order number